Libyan Investment Law: Before and After, Political developments and Economic Policies – Dr. Mohamed karbal
It has been proven that political development is a prerequisite for economic development. In other words, to stabilize a national economy, economic growth must be accompanied by political maturity. Political maturity, in turn, will attract external capital, thereby stimulating the country’s development. The Soviet Union, in its later stages, provides an example. In the late 1980s, Mr. Gorbachev unveiled his reform program, known as “Perestroika,” which literally means “restructuring.” Perestroika was declared without establishing a new political system that would go hand in hand with the economic restructuring to ensure social justice and equality of opportunities. Instead, the old Soviet political structure was maintained, with its overwhelming bureaucracy and lack of transparency. Perestroika did not incorporate these basic tenets of good governance, as it was primarily concerned with market liberalization. As a result, the Soviet political system failed to create a comfortable atmosphere for Libyan Investment. Further, this is arguably the same reason the entire Soviet experience failed. Simply stated, a country must be politically stable, with its laws and decisions clearly defined and integrated, to succeed economically. In addition, it should have an independent, mature judicial system that competently addresses foreign investors’ complaints while safeguarding people’s rights.
The mere availability of capital, infrastructure, and investment opportunities does not guarantee stability. Actually, a country must provide tangible guarantees that ensure the maintenance of investors’ rights. Further, the announcement of the formulation of investment laws and their implementation, as well as the designation of specific areas for free trade, does not indicate the establishment of an investment environment or ensure investors’ rights as defined by the laws.
Libya Topped the Third World Countries: –
In 1975, the Organization for Economic Cooperation and Development (OECD) published a comparative economic study, comprising the USA, Australia, and developed European countries. The study addressed the gap in economic growth between rich and poor nations and raised the question of whether it could be closed. The study’s main concern was: how many years would it take for Third World countries to catch up with the developed countries? The study’s authors chose to list the most developed nations of the Third World as well as those at the lowest levels, including several Arab countries such as Libya, Saudi Arabia, Tunisia, Iraq, and Syria. In addition, other countries listed were Singapore, Malaysia, and China. The countries were rated based on their economic growth between 1965 and 1974. Libya topped the list of Third World countries, with a growth rate of 11.8%, followed by Saudi Arabia, with a growth rate of 11.6%, Singapore, 7.6%, Israel, 5.0%, Iraq, 4.4%, Turkey, 4.0%, while the economic growth of Malaysia and China was at 3.8%.
The study concluded that if Third World countries maintain the economic growth they achieved during the previous period, they will be consideredpart of the 2 developed countries after a certain number of years. The study concluded that Libya needed only two years to catch up with developed nations. The Kingdom of Saudi Arabia needed 14 years, Singapore needed 22 years, Israel needed 37 years, Iraq needed 223 years, Turkey needed 675 years, Malaysia needed 2293 years, while China was in need of 2900 years to catch up with developing countries.
Interestingly, this prediction proved credible when the world, in 1997, declared Singapore’s admission to the advanced nations. Libya was not as fortunate.
Instead of maintaining the fiscal policies that would have sustained its economic growth, the Libyan government at that time decided to cancel the free economic system by abolishing all business licenses. Further measures by the Libyan government were to allow the government to control commercial and industrial activities, while preventing the private sector from engaging in such activities. As a result of the state-run economy, the atmosphere fostered lax business practices, the institutionalization of bribery, and the ongoing looting of public funds. Instead of announcing Libya’s arrival at the level of first-world countries, Libya sank into a deep abyss of political, administrative, and economic corruption.
After many years of self-imposed economic isolationism, the former Libyan regime decided to open up to the outside world by announcing a wide array of investment opportunities in various fields. The response was well received by both Arab and foreign investors. Free Zones were identified, and laws were enacted that guaranteed the bulk of the investor benefits, including tax exemption and the transfer of profits abroad.
However, as with the Soviet experience, the former regime was intentionally unconcerned with establishing a free political and economic system that ensures equal opportunities, fair competition, and reduced corruption. Rather, the regime used economic openness as an opportunity to grant close cronies the right to receive all capital and business opportunities from abroad and to use them for their own personal interests. Administrative corruption became rampant, and public funds were used unlawfully. These circumstances were where the resentment of political oppression and economic deprivation led to an explosion that became the popular revolution that brought down the former regime.
The Future of Libyan Investment:
After the victory of the Libyan people over the old regime, the new Libyan leaders have begun to reintegrate the country into the ranks of stable, politically sophisticated, constitutional countries. Because Libya is still a Third World country rich in natural resources, the use of foreign expertise is essential to its success. Foreign expertise, along with advanced technologies, will be needed to help Libya exploit and market its natural resources and develop its infrastructure. The Libyans shall welcome such capital and expertise to operate within a well-defined framework of cooperation and mutual benefits.
As there is a current debate in Libya about how to attract foreign capital and technical expertise, there must be better administrative effort than just legislation. Clear rules must be established for integration and for regulating the economic relationship between the country and foreign capital. All rules must take into account the legal rights of foreign investors. Also needed are laws that set out the procedures for open tendering to ensure the highest degree of transparency.
In conclusion, the relationship between a country that invites foreign capital and foreign investors should be based on transparency and the highest level of common interests for both parties.
By Mohamed Karbal (Libyan Investment Law)